CAR SHARING Business Model
The car sharing business model isn’t something that is so simple to understand. Because of the various structures that are available for the creation of your carshare operation, the needs of the business model will range. However, you can be pretty certain that your car sharing business model will need a healthy balance of attention on regulation, finances, technology, operation, and market assessment.
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Understanding the Car Sharing Business Model and How to Build Yours
Overview / Market Growth
The convergence of demographic changes, urbanization, and economic forces has created fertile ground for the growth of car sharing globally. The Millennial generation (aged between 15 to 34) are driving less, living in more urbanized locations, and are facing a higher rate of living in poverty despite having a job. Car sharing addresses this convergence by offering this population convenient and affordable access to a vehicle anytime. As a result, car sharing has experienced significant growth.
There were almost 2 million carsharing members in North America alone and almost 25,000 vehicles as of January 2017 as per Susan Shaheen’s annual carsharing outlook. Ridesourcing services, like Lyft and Uber, are growing at a rapid pace as well. In 2017, Uber claimed more than 50 million riders worldwide had taken more than 5 billion rides total since its founding in 2009.
Industry research suggests continued high-growth rates in the category. Frost and Sullivan, an automotive and transportation consulting firm, expects that the global carsharing market will grow from 7 million in 2015 to 36 million by 2025 and that the number of available carsharing vehicles will grow almost 4 times in the same time frame. Global Market Insights Inc., a global market research and business intelligence and insights group, expects that the “car sharing market is slated to record a massive double digit y-o-y growth (34.8%), with a projected revenue collection of more than USD 16.5 billion by 2024.”
This article discussed the different types of carsharing businesses, their market potential before it delves into the revenue models, operational setups and some case studies that illustrate common mistakes.
Four Ways to Build a Car Sharing Business Model
There are four different ways to build your car sharing business model: B2C (business-to-consumer), B2B (business-to-business), P2P (peer-to-peer) and not-for-profit. B2C carsharing comes in many different types: it can be free-floating, station-based or A-B. B2B, P2P and not-for profit seem to focus on station-based or A-B models mostly.
Source: movmi Shared Transportation Services Inc
One can argue that there is a fifth business model, the for hire one, where a passenger hires a driver for a period of time. Examples for this type of business model are Uber, Didi, Careem or Lyft. For the purpose of this article, we will not evaluate the for hire business model in more detail.
B2C: Private Car Sharing
Historically round trip car sharing witnessed huge adoption. The model allows a members to pick and return a shared car at the same station, hence round trip. Members access the car either through an RFID access card or by using their mobile app. Round-trip carsharing has been adopted world-wide, even in small communities with less than 100,000 inhabitants because it requires a low level of capital investment to start this type of carshare as well as technological limitations in the early days of carsharing. Members generally are charged a one-time registration fee and then a monthly membership fee to become part of the carsharing club.
Trips are charged based on time and distance travelled. Most station-based carshare organizations have a mileage allowance (generally around 200km/150miles) before they charge mileage fees. In recent years and with the advent of free-floating carsharing models, there has been a reduced interest in the station-based business model because of the inconvenience caused in returning the vehicle to the same location. Key Players are Zipcar, Flinkster or cambio.
A-B models are a more flexible option where members are allowed to pick up a vehicle in one location and drop it off in a different, designated parking spot. Generally they have to decide at the beginning of the trip where they would like to end their trip and book a parking spot at their destination. This model has seen some success for airport/ferry terminal or train station scenarios because it solves the first and last mile problem for members. It also is successful when implementing an electric carsharing service because it allows members to park the vehicles at charging stations at the end of their trips. Generally members are charged in a similar fashion as in the station-based model, the exception being an additional charge for airport drop offs, generally around USD 5. Key players are Autolib, BlueIndy or Zipcar One>Way.
The free-floating model has gained traction since the foundation of Daimler’s car2go in 2008. Instead of returning the car to a fixed parking location, members can end their trips anywhere within a designated home area. In February 2017, Vulog, a software platform providers for free-floating carsharing, has estimated that there are 50 cities with free-floating services and over 30,000 free-floating carsharing vehicles on the road.
While members still pay a one-time registration fee, they don’t pay a recurring membership fee. Instead they are charged by-the-minute with rate caps for hourly and daily rates. The dominant players globally are car2go and DriveNow, currently rumoured to merge. Other smaller players with a B2C car sharing business model are Evo in Vancouver, Gig in San Francisco or EMov in Madrid.
Market size potential depends on what type of B2C carsharing we’re looking at. For the free-floating car sharing business model, the focus is primarily highly populated, dense cities with a more affluent demographic. This makes intuitive sense because the upfront capital investment for a free-floating fleet is much larger. Vulog recommends that at minimum 50 vehicles are recommended to launch.
movmi’s experience has shown that free-floating fleet launches have been most successful in cities with 500,000 or more inhabitants and a population density of at least 1,500people/square kilometer (4000people/square mile). According to the UN, there were about 1,063 cities that have 500,000 or more inhabitants.
Such cities generally launch with an initial fleet of about 250 vehicles and a city of 700,000 inhabitants can grow up to 1,250 vehicles. If every single city above 500,000 people would introduce a free-floating carsharing scheme with 1,250 vehicles, there would be over 13 million carsharing vehicles. This might seem a lot but it’s still only about 1% of all cars on the road.
Station-based and a A-B car sharing model can tap into the same markets but also into smaller ones, cities with less than 100,000 inhabitants.
B2B: Corporate Car Sharing
Corporate carsharing focuses on the station-based model. It generally is used to replace corporate fleets. Some of the players such as Alphacity or Sunfleet are backed by large OEMs (BMW, Volvo) but there is also a growing number of B2C station-based operators that offer their vehicles to corporations during business hours when their own members use them not very much. Mobility in Switzerland has done this successfully for many years.
In addition to that there is currently a trend to offer real estate developers carsharing solutions for their tenants as part of the amenities. BMW’s ReachNow program for instance is offering an all electric carsharing fleet to the tenants of the Solaire, an exclusive residential tower in New York. Key players in this market are Alphacity (the program that is supported by BMW), Ubeeqo or Volvo’s Sunfleet.
Frost and Sullivan predicted that the corporate carsharing fleet will grow from 1,900 in 2013 to 84,000 vehicles by 2020 and that the number of providers will grow almost 2.5 times. Because of economical pressure on companies, a focus on reducing their own fleets and introducing more environmentally friendly vehicles, more companies will look at corporate carsharing as an alternative. In fact Frost and Sullivan predicted a 20x growth from 2013 to 2020 with 4,000 companies looking at corporate carsharing in Europe alone.
Peer 2 Peer
Peer-to-Peer (P2P) carsharing services such as Turo, Getaround or Drivy, have also been called the AirBnB for vehicles: they allow car owners to convert their personal vehicles into shared cars which can be rented to other drivers on a short-term basis. The idea behind it is that most privately owned vehicles sit idle over 90% of the day and so adding them to a peer-to-peer network increases utilization overall.
From a service provider perspective, P2P car-sharing alleviates upfront costs and so it is more economically viable to bring to lower-density neighborhoods than traditional carsharing. In fact, there have been various research papers a few years ago, claiming that P2P is the way to expand carsharing into lower-density communities. In 2017, movmi explored a business case scenario to expand a traditional round-trip carshare through P2P in adjacent lower density municipality. We wanted to understand whether P2P vehicles could determine where demand for carsharing is growing in these municipalities and help reduce the risk of placing an expensive new asset in the wrong area. However, there are certain barriers to participating in P2P which have to be overcome: liability and insurance, aversion to interacting with strangers and trust as Shaheen and Bansal (2015) found in their study.
The P2P carsharing market has grown steadily over the past few years, Turo for instance operates not just in 4,500 cities, but 300 airports, too. The average rental for the company was more than five days in 2015. Turo is positioning itself as a cheaper and more adventurous alternative to car rental. It f.i. is promoting vintage and classic cars which come at what Turo claims is an average 30% discount to typical rental prices. The Global Car Rental report predicts the global rental market potential and is currently estimating a CAGR of 17.52% during the period 2018-2022.
Lastly it is worth mentioning that early pioneers in carsharing mostly operated as not-for-profit community organizations. Some of them have grown significantly since their inception, such as Modo in Vancouver, BC which now is at over 600 vehicles or Mobility in Switzerland with almost 3,000 vehicles. Also many smaller communities offer carsharing through not-for-profit organizations: Capital Carshare in Albany, NY, CarshareVermont in Burlington, VT or EGo Carshare in Boulder, Colorado.
How is Carsharing Different From Traditional Car Business
The carsharing business model is all about access and not ownership. Instead of buying a product, one of the most expensive household items in fact, people become members in a club. The original carshare business model was a subscription model where members paid a monthly or annual fee to access the vehicles and then an hourly fee when they actually use the vehicles. Susan Shaheen found in 2017 that most annual fees for station-based carsharing services are between USD 30 and USD 70, with cars costing USD 3 to USD 11 per hour and zero to 50 cents per mile to use. For A-B services, members are charged in a similar fashion, the exception being an additional charge for services that allow special drop offs such as the airport. The prices generally tend to be around USD 5.
The monthly subscription fees of this car sharing business model were highly predictable for consumers but the additional charges per usage makes them difficult for customers to understand what the actual price of a rental is. Subscription based models also have to deal with churn rates.
Business Operation: Preparation For a winning car sharing business model
Once you have decided what business model you would like to offer, it is time to figure out how to prepare and launch your service.
Permission from regulatory bodies
We highly recommend reviewing the existing regulatory framework first in particular parking, rental car and insurance regulations. For carsharing services to be successful, there has to be a parking arrangement in place that supports your business model. Germany has a country wide carsharing law since 2017 but in most countries parking is controlled and managed by your local municipal authority. To implement a free-floating car sharing business model where members can leave their vehicles anywhere, you need permission to park the vehicles on-street which requires an exemption from metered and residential parking bylaws in general. The City of Vancouver for instance has created a special parking permit that carshare operators can purchase. The permit allows carsharing members to park in any residential zone just like a person who owns a car and who lives in that neighbourhood could. At the end of 2016, movmi has collected bylaws and transportation plans for 20 North American cities and made them available through the Shared Mobility City Index. The report provides examples of what is possible and what is not.
Simultaneously to reviewing the regulatory landscape, most operators conduct a market assessment: it is crucial to understand the competitive landscape, who your target audience is, what their transportation frustrations are and if your business model will solve that. It is not just about understanding your target demographics, it is also understanding the existing market and products out there. We recently have completed a benchmarking study in the city of Seattle and the results were interesting.
If you are in a highly competitive market like Seattle with 4 operators which all have a smartphone app or mobile friendly website to reserve, start and end a trip, you cannot build your car sharing business model successfully with an RFID only program. You will need a product and service that is technologically en par with the rest of the players.
On the other hand, if you enter a market like Honolulu that only offers Zipcar and Enterprise Carshare, both lagging behind technological advances, then your service will be premium if you offer a an app based service that has the capability to unlock the vehicle using Bluetooth Low Energy like Hui Carshare.
The next step is to sort out finances and build a proper capital budget as well as a 3 or 5 year statement of operations. You have to answer these questions on the revenue side:
- Is your business model based on a subscription model? If yes, have you factored in churn?
- If it is a pay-as-you-go model you will attract a lot more members but also have a much higher percentage of inactive users.
- What is the % split between inactive, active and your best users?
- And what are the average trip lengths and distances based on the use cases you target?
On the cost side, it is not just the lease, insurance, maintenance, software license and staffing costs that you need to consider. You also have to factor in the application processing costs, bad debt and if you are in a market with higher than normal fraudulent activities. On top of the sales taxes, you will most likely also be subject to tax rates for rental businesses. All of these numbers are different in each market and having a fully flexible financial model like we have built will make sorting out your finances as easy as it can be.
When looking at carsharing technology platforms, you should investigate how they support your operations in the long run. This means they need to support you in the following 5 areas:
- telematics and what data it can collect from the CanBus;
- pricing tables, promotion modules, billing methods and payments gateways;
- fleet management with proper asset tracking and an easy map overview;
- customer management which includes a ticketing system that supports different teams;
- and finally a robust reporting tool managing your KPIs and ideally also a dashboard.
In 2017 movmi has reviewed 9 of the top technology software vendors that can support your unique car sharing business model. We interviewed Good Travel Software, INVERS, Mobiag, Mobility Systems & Services, MonGeo, Omoove, Ridecell, Vulog and EcoMobiX. Through live-demos, these vendors showed us how their technology helps meet operators and members demands. You can find more information about this review here.
Finally you also need to figure out the setup of your operations. The success of your carsharing initiative depends on many factors but in order to be functional, you have to consider three key areas of Shared Mobility Design: your community, your members and your assets.
Each area is lead by a team:
- The community team is mainly responsible for growing your membership, vehicle utilization and revenues.
- The fleet team is responsible for vehicle maintenance making sure that cars are clean, safe and in the right place.
- The member services is responsible for fixing problems that occur when carsharing members try to sign up, rent a vehicle or pay for the service.
movmi has built a playbook over the past 3 years that outlines which processes and procedures to implement, what tools your team needs and how you measure their success.
Common Mistakes and Misconceptions of the Car Sharing Business model
There are a few common mistakes and misconceptions when starting a carsharing business.
Start without the proper regulations: DriveNow San Fran
In 2015, DriveNow, BMW’s free-floating car sharing business model launched with a deployment of 70 BMW ActiveE electric cars. There were 900 parking spaces for car-sharing vehicles in San Francisco. But DriveNow, a car-sharing joint venture between BMW Group and Sixt SE, couldn’t use any of them because their business model was free-floating and San Francisco’s parking spaces are for station-based carsharing only. As former CEO Rich Steinberg told Fortune and after they shut down operations in November 2015, “At the time, we were hoping to work with the city on a parking solution similar to what we have in existence in our European cities.” What DriveNow’s failure in San Francisco highlights is the complexity of regional and city parking policies which can make delivering that service impossible.
Underestimate the importance of convenience
PSA learnt the hard way that carsharing members value convenience over anything else. They launched their Multicity car-sharing service in Berlin in 2012 on the free-floating car sharing business model with only 200 Citroen C Zero EV and C1 minicars. The size of their fleet was too small compared to the area of the city because their customers needed to walk sometimes up to 1km to find the closest vehicle. If you want to change behaviour and get people out of their personal cars, you have to make the service uber convenient. As Brigitte Courtehoux, PSA’s senior vice president for mobility services, said “We learned that you need to put the cars in front of the customer”.
This is something car2go understood from the start. They launched the Berlin market the same year as PSA but they enter the market with 1,000 vehicles. Today car2go Berlin offers 1,100 vehicles.
Underestimate operational challenges
In 2011, car2go launched an all electric version of their free-floating carsharing service in San Diego with a promised by the federal government that 1,000 charging stations would be installed over the next few years. Instead, only 400 charging stations were installed because the nonprofit handling installations went bankrupt in 2013. Without proper infrastructure it was almost impossible to ensure that the entire fleet had enough charge and range anxiety made car2go membership numbers plateau at about 40,000.
car2go tried to solve the challenges of the underperforming market in different ways. First they introduced flatbeds that shuttled the EV smart cars to the closest charging stations, then, in 2015, they shrank the home service area significantly and in a last attempt they exchanged the EVs with traditional combustion engine ones in May 2016. Only to announce 6 months later that they will shut down the market completely.
movmi’s Case Study: Transforming Traditional Car Manufacture to Car Sharing Business
BMW wanted to launch a free-floating car sharing business model in North America that is similar to their European service, called DriveNow. The service needed to compete with other transportation options such as car2go, Uber or Lyft, all already offered in the United States. This meant BMW wanted to add a ridehailing component to the carsharing service. In addition to that, BMW had set extremely aggressive timelines and wanted to launch in 3 different markets (Seattle, Portland and Brooklyn, NY) within less than 12 months.
Sandra acted as interim ReachNow’s Chief Customer Officer and was responsible for Sales & Marketing, Product and Market Development while movmi’s team supported ReachNow with content creation for the growth strategy as well as product and service testing for the Portland launch – the first time the multi-city platform was used. The implementation of a proper testing team was crucial to ensure that quality released to market was en par with competition (car2go in the case of Portland). Once the internal testing team was hired, movmi’s team handed over the reigns.
Under her leadership the team built and introduced an exclusive airport offering as well as the mobility ecosystem pilot program with on-demand and reserved carsharing as well as ridesharing (like Lyft or Uber) to increase fleet utilization. Sandra carried the vision for the go-to-market strategy for multi-city and multi-product offering and worked with various internal stakeholders and departments to turn that vision into reality.
The results of movmi’s input are:
- A seamless and best-in-class registration process which resulted in more than 7,000 registrations when Seattle launched.
- A shortened timeline between the launch of Seattle and Portland: within 4 months Portland was launched and the biggest challenge was getting the software platform ready for a multi-city offering.
- The first time a car manufacturer launched a carsharing and ride-hailing platform pilot in January 2017. The design work for this platform started in July 2016, so within less than 6 months the new service was launched. Risk and quality management was key and so the driver’s were employed and trained through a third party provider, Eco-Service.
As you can tell, the car sharing business model has many various aspects and moving parts which – when executed with attention and detail – will lead to the success (or lack thereof) of your carshare operation.
Are you interested in learning more about the business model of your next shared mobility launch? Send us a note and we’ll help you get started.